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Stock Strategist Industry Reports

Fighting the '-flations' with Utilities

Our top utility picks during periods of inflation, deflation, or stagflation.

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Intuition suggests a simple rule when considering investments in utilities: Sell on inflation, buy on deflation, and hold on stagflation. But since deregulation in the mid-1990s, that analysis no longer holds for the broad sector. Investors must look more closely at individual companies and the sector's three industry groups--regulated, diversified and independent power producers (IPPs)--to play their hands properly during any period of "-flation."

Sluggish GDP growth, still-high unemployment, and high energy and food prices suggest stagflation could be the biggest current threat. With most regulated utilities trading at multidecade peak earnings multiples and the commodity-sensitive diversifieds and IPPs struggling with sluggish power demand, here are four of our top picks to outperform in the current environment:

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Travis Miller does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.